The Shadowy Story Behind Scientology's Tax-Exempt Status

New York Times, 9 March 1997

By DOUGLAS FRANTZ

On Oct. 8, 1993, 10,000 cheering Scientologists
thronged the Los Angeles Sports Arena to celebrate
the most important milestone in the church's recent
history: victory in its all-out war against the
Internal Revenue Service.

For 25 years, IRS agents had branded Scientology a
commercial enterprise and refused to give it the tax
exemption granted to churches. The refusals had been
upheld in every court. But that night the crowd learned
of an astonishing turnaround. The IRS had granted tax
exemptions to every Scientology entity in the United
States.

"The war is over," David Miscavige, the church's
leader, declared to tumultuous applause.

The landmark reversal shocked tax experts and saved the
church tens of millions of dollars in taxes. More
significantly, the decision was an invaluable public
relations tool in Scientology's worldwide campaign for
acceptance as a mainstream religion.

On the basis of the IRS ruling, the State Department
formally criticized Germany for discriminating against
Scientologists. The German government regards the
organization as a business, not a tax-exempt religion,
the very position maintained for 25 years by the U.S.
government.

The full story of the turnabout by the IRS has remained
hidden behind taxpayer privacy laws for nearly four
years. But an examination by The New York Times found
that the exemption followed a series of unusual
internal IRS actions that came after an extraordinary
campaign orchestrated by Scientology against the agency
and people who work there. Among the findings of the
review by The New York Times, based on more than 30
interviews and thousands of pages of public and
internal church records, were these:

Scientology's lawyers hired private investigators to
dig into the private lives of IRS officials and to
conduct surveillance operations to uncover potential
vulnerabilities, according to interviews and documents.
One investigator said he had interviewed tenants in
buildings owned by three IRS officials, looking for
housing code violations. He also said he had taken
documents from an IRS conference and sent them to
church officials and created a phony news bureau in
Washington to gather information on church critics. The
church also financed an organization of IRS
whistle-blowers that attacked the agency publicly.

The decision to negotiate with the church came after
Fred T. Goldberg Jr., the commissioner of the Internal
Revenue Service at the time, had an unusual meeting
with Miscavige in 1991. Scientology's own version of
what occurred offers a remarkable account of how the
church leader walked into IRS headquarters without an
appointment and got in to see Goldberg, the nation's
top tax official. Miscavige offered to call a halt to
Scientology's suits against the IRS in exchange for tax
exemptions.

After that meeting, Goldberg created a special
committee to negotiate a settlement with Scientology
outside normal agency procedures. When the committee
determined that all Scientology entities should be
exempt from taxes, IRS tax analysts were ordered to
ignore the substantive issues in reviewing the
decision, according to IRS memorandums and court files.

The IRS refused to disclose any terms of the
agreement, including whether the church was required to
pay back taxes, contending that it was confidential
taxpayer information. The agency has maintained that
position in a lengthy court fight, and in rejecting a
request for access by The New York Times under the
Freedom of Information Act. But the position is in
stark contrast to the agency's handling of some other
church organizations. Both the Jimmy Swaggart
Ministries and an affiliate of the Rev. Jerry Falwell
were required by the IRS to disclose that they had paid
back taxes in settling disputes in recent years.

In interviews, senior Scientology officials and the IRS
denied that the church's aggressive tactics had any
effect on the agency's decision.

They said the ruling was based on a two-year inquiry
and voluminous documents that showed the church was
qualified for the exemptions.

Goldberg, who left as IRS commissioner in January 1992
to become an assistant secretary at the Treasury
Department, said privacy laws prohibited him from
discussing Scientology or his impromptu meeting with
Miscavige.

The meeting was not listed on Goldberg's appointment
calendar, which was obtained by The New York Times
through the Freedom of Information Act.

The IRS reversal on Scientology was nearly as
unprecedented as the long and bitter war between the
organizations. Over the years, the IRS had steadfastly
refused exemptions to most Scientology entities, and
its agents had targeted the church for numerous
investigations and audits.

Throughout the battle, the agency's view was supported
by the courts. Indeed, just a year before the agency
reversal, the U.S. Claims Court had upheld the IRS
denial of an exemption to Scientology's Church of
Spiritual Technology, which had been created to
safeguard the writings and lectures of L. Ron Hubbard,
the late science fiction writer whose preachings form
the church's scripture.

Among the reasons listed by the court for denying the
exemption were "the commercial character of much of
Scientology," its "virtually incomprehensible financial
procedures" and its "scripturally based hostility to
taxation."

Small wonder that the world of tax lawyers and experts
was surprised in October 1993 when the IRS announced
that it was issuing 30 exemption letters covering about
150 Scientology churches, missions and corporations.
Among them was the Church of Spiritual Technology.

"It was a very surprising decision," said Lawrence B.
Gibbs, the IRS commissioner from 1986 to 1989 and
Goldberg's predecessor. "When you have as much
litigation over as much time, with the general
uniformity of results that the service had with
Scientology, it is surprising to have the ultimate
decision be favorable. It was even more surprising that
the service made the decision without full disclosure,
in light of the prior background."

While IRS officials insisted that Scientology's tactics
did not affect the decision, some officials
acknowledged that ruling against the church would have
prolonged a fight that had consumed extensive
government resources and exposed individual officials
to personal lawsuits. At one time, the church and its
members had more than 50 suits pending against the IRS
and its officials.

"Ultimately the decision was made on a legal basis,"
said a senior IRS official who was involved in the case
and spoke on the condition that he not be identified.
"I'm not saying Scientology wasn't taking up a lot of
resources, but the decision was made on a legal basis."

The church's tactics appeared to violate no laws, and
its officials and lawyers argued strenuously in a
three-hour interview at church offices in Los Angeles
last month that the exemptions were decided solely on
the merits. They said the church had been the victim of
a campaign of harassment and discrimination by "rogue
agents" within the IRS. Once the agency agreed to
review the record fairly, they said, it was inevitable
that the church would be granted its exemptions.

"The facts speak for themselves," said Monique E.
Yingling, a Washington lawyer who represented the
church in the tax case. "The decision was made based on
the information that the church provided in response to
the inquiry by the Internal Revenue Service."

Church officials and lawyers acknowledged that
Scientology had used private investigators to look into
their opponents, including IRS officials, but they said
the practice had nothing to do with the IRS decision.

"This is a church organization that has been subjected
to more harassment and more attacks certainly than any
religion in this century and probably any religion
ever, and they have had to perhaps take unusual steps
in order to survive," Ms. Yingling said.

THE ORIGINS: AN EXPANDING CHURCH ON A COLLISION COURSE

Since its founding in 1950, Scientology has grown
into a worldwide movement that boasts 8 million
members, although defectors say the actual number is
much smaller. The church, which has vast real estate
holdings around the world and operates a yacht based in
the Caribbean, describes itself as the only major new
religion to have emerged in the 20th century.

Its founder, Hubbard, asserted that people are immortal
spirits who have lived through many lifetimes. In
Scientology teachings, Hubbard described humans as
clusters of spirits that were trapped in ice and
banished to Earth 75 million years ago by Xenu, the
ruler of the 26-planet Galactic Confederation.

Scientology describes its goal as "a civilization
without insanity, without criminals and without war,
where the able can prosper and honest beings can have
rights, and where Man is free to rise to greater
heights." To reach those heights, Scientologists
believe, each individual must be "cleared" of problems
and afflictions through a series of counseling sessions
known as "auditing." The sessions are performed by a
trained auditor assisted by a device similar to a lie
detector, known as an E-meter.

Although Scientology's complicated finances make a
total estimate difficult, records on file at the IRS
indicate that in the early 1990s the church was earning
about $300 million a year from auditing fees, the sale
of Scientology literature and recordings, management
services and the franchising of its philosophy. Church
officials said those figures were higher than actual
earnings.

The original mother church, the Church of Scientology
of California, was established by Hubbard in Los
Angeles in 1954. Three years later, it was recognized
as tax exempt by the IRS. But in 1967, the agency
stripped the church of its exemption, and a fierce
struggle broke out between the agency and the church.

In its revocation letter, the agency said that
Scientology's activities were commercial and that it
was being operated for the benefit of Hubbard, a view
supported by the courts several times in the ensuing 25
years. The church ignored the action, which it deemed
unlawful, and withheld taxes.

The IRS put Scientology on its hit list. Minutes of IRS
meetings indicate that some agents engaged in a
campaign to shut down Scientology, an effort that
church officials cite as evidence of bias. Some of the
tactics led to rebukes by judges, including a 1990
ruling in Boston that criticized the IRS for abusive
practices in seeking access to church records.

Scientology retaliated. In 1973 the church embarked on
a program code named Snow White. In a document labeled
"secret," Hubbard outlined a strategy to root out all
"false and secret files" held by governments around the
world regarding Scientology.

"Attack is necessary to an effective defense," Hubbard
wrote.

Snow White soon turned sinister. Under the supervision
of Hubbard's third wife, Mary Sue, Scientologists
infiltrated the Department of Justice and the IRS to
uncover information on Hubbard. They broke into offices
at night and copied mountains of documents. At one
point, an electronic bugging device was hidden inside
an IRS conference room the day before a meeting about
Scientology.

Critics say those actions fell under a church doctrine
that Hubbard had called the Fair Game policy. Hubbard
wrote that church enemies may "be deprived of property
or injured by any means by any Scientologist without
any discipline of the Scientologist. May be tricked,
sued or lied to or destroyed."

The conspiracy was uncovered in 1977, and Mrs. Hubbard
and 10 others were eventually sentenced to prison.
Hubbard was named an unindicted co-conspirator because
investigators could not link him to the crimes.

The church promised to change its ways. Scientologists
said members who broke the law were purged, including
Mrs. Hubbard, and the church was restructured to
protect against a recurrence. The Fair Game policy,
they said, has been misinterpreted by courts and
critics.

"There is nothing like that," said Elliot J. Abelson,
the church's general counsel. "It doesn't happen."

THE COVERT WAR: WHISTLE-BLOWERS AND 'VULNERABILITIES'

But interviews and an examination of court files
across the country show that after the criminal
conspiracy was broken up, the church's battle against
the IRS continued on other fronts. When Hubbard died in
January 1986, his opposition to taxes lived on among
the new generation of leaders, including Miscavige, a
second-generation Scientologist.

Part of the battle was public. A leading role was
played by the National Coalition of IRS
Whistle-Blowers, which Scientology created and financed
for nearly a decade.

On the surface, the coalition was like many independent
groups that provide support for insiders who want to go
public with stories of corruption. But Stacy B. Young,
a senior Scientology staff member until she defected in
1989, said she helped plan the coalition as part of
Scientology's battle against the IRS in late 1984 while
she was managing editor of the church's Freedom
Magazine.

"The IRS was not giving Scientology its tax exemption,
so they were considered to be a pretty major enemy,"
Ms. Young said. "What you do with an enemy is you go
after them and harass them and intimidate them and try
to expose their crimes until they decide to play ball
with you. The whole idea was to create a coalition that
was at arm's length from Scientology so that it had
more credibility."

Ms. Young said she recruited Paul J. DesFosses, a
former IRS agent who had spoken out against the agency,
to serve as the group's president. DesFosses
acknowledged that Scientology provided substantial
financing, but he denied that the church created or ran
the coalition.

"We got support from lots of church groups, including
the Church of Scientology," DesFosses said in a recent
interview.

The coalition's biggest success came in 1989 when it
helped spark congressional hearings into accusations of
wrongdoing by IRS officials. Using public records and
leaked IRS documents, the coalition showed that a
supervisor in Los Angeles and some colleagues had
bought property from a firm being audited by the
agency. Soon after the purchase, the audit was dropped
and the firm paid no money.

Kendrick L. Moxon, a longtime church lawyer,
acknowledged that the coalition was founded by Freedom
Magazine. He said its work was well known and part of a
campaign by Scientology and others to reform the IRS.

The church's war had a covert side, too, and its
soldiers were private investigators. While there have
been previous articles about the church's use of
private investigators, the full extent of its effort
against the IRS is only now coming to light through
interviews and records provided to The New York Times.

Octavio Pena, a private investigator in Fort Lee, N.J.,
achieved a measure of reknown in the late 1980s when he
helped expose problems within the Internal Revenue
Service while working on a case for Jordache
Enterprises, the jeans manufacturer.

In the summer of 1989, Pena disclosed in an interview,
a man who identified himself as Ben Shaw came to his
office. Shaw, who said he was a Scientologist,
explained that the church was concerned about IRS
corruption and would pay $1 million for Pena to
investigate IRS officials, Pena said.

"I had had an early experience with the Scientologists,
and I told him that I didn't feel comfortable with him,
even though he was willing to pay me $1 million," Pena
said.

Scientology officials acknowledged that Shaw worked for
the church at the time, but they scoffed at the notion
that he had tried to hire Pena. "The Martians were
offered $2 million; that's our answer," said Moxon,
whose firm often hired private investigators for the
church.

Michael L. Shomers, another private investigator, said
he shared none of Pena's qualms, at least initially.

Describing his work on behalf of Scientology in a
series of interviews, Shomers said that he and his
boss, Thomas J. Krywucki, worked for the church for at
least 18 months in 1990 and 1991.

Working from his Maryland office, he said, he set up a
phony operation, the Washington News Bureau, to pose as
a reporter and gather information about church critics.
He also said he had infiltrated IRS conferences to
gather information about officials who might be
skipping meetings, drinking too much or having affairs.

"I was looking for vulnerabilities," Shomers said.

Shomers said he had turned over information to his
Scientology contact about officials who seemed to drink
too much. He also said he once spent several hours
wooing a female IRS official in a bar at a conference,
then provided her name and personal information about
her to Scientology.

In one instance, information that Shomers said he had
gathered at an IRS conference in the Pocono Mountains
was turned over to an associate of Jack Anderson, the
columnist, and appeared in one of Anderson's columns
criticizing top IRS managers for high living at
taxpayer expense.

Shomers said he had received his instructions in
meetings with a man who identified himself as Jake
Thorn and said he was connected with the church.
Shomers said he believed the name was a pseudonym.

Shomers said he had looked into several apartment
buildings in Pennsylvania owned by three IRS officials.
He obtained public files to determine whether the
buildings had violated housing codes, he said, and
interviewed residents looking for complaints, but found
none.

In July 1991, Shomers said, he posed as a member of the
IRS whistle-blowers coalition and worked with a
producer and cameraman from NBC-TV to get information
about a conference for senior IRS officials in Walnut
Creek, Calif. The producer said that she recalled
Shomers as a representative of the whistle-blowers, but
knew nothing of his connection to Scientology. The
segment never ran.

At one point, Shomers said, he slipped into a meeting
room at the Embassy Suites, where the conference was
held, and took a stack of internal IRS documents. He
said he mailed the material to an address provided by
his church contact.

Krywucki acknowledged that he had worked for
Scientology's lawyers in 1990 and 1991, though he
declined to discuss what he did. He said he would ask
the lawyers for permission to speak about the inquiry,
but he failed to return telephone calls after that
conversation.

It is impossible to verify all of Shomers' statements
or determine whether his actions were based on specific
instructions from church representatives. He said he
had often been paid in cash and sometimes by checks
from Bowles & Moxon, a Los Angeles law firm that served
as the church's lead counsel. He said he had not
retained any of the paychecks.

Shomers provided The New York Times with copies of
records that he said he had obtained for the church as
well as copies of hotel receipts showing that he had
stayed at hotels where the IRS held three conferences,
in Pennsylvania, West Virginia and California. He also
provided copies of business cards, with fake names,
that he said had been created for the phony news bureau
in Washington and copies of photographs taken as part
of his surveillance work.

One of the IRS officials investigated by Shomers
recalled that a private investigator had been snooping
around properties he managed on behalf of himself and
two other mid-level agency officials.

The official, Arthur C. Scholz, who has since left the
IRS, said he was alerted by tenants that a man who
identified himself as a private investigator had
questioned tenants about him and the other landlords.
He said the tenants had not recalled the man's name but
had noted that he was driving a car with Maryland
license plates.

"He went to the courthouse and found the properties,
and then went out banging on doors of these tenants and
made a number of allegations dealing with things that
were totally bull," said Scholz, who had no involvement
with the IRS review of Scientology and was at a loss to
explain why the church would have been interested in
him. "I notified the local police about it."

Shomers, who has since left the private-investigation
business, said he was willing to describe his work for
the church because he had come to distrust Scientology
and because of a financial dispute with Krywucki.

Moxon, the Scientology lawyer, said the IRS was well
aware of the church's use of private investigators to
expose agency abuses when it granted the exemptions.
Moxon did not deny hiring Shomers, but he said the
activities described by Shomers to The New York Times
were legal and proper.

Moxon and other church lawyers said the church needed
to use private investigators to counter lies spread by
rogue government agents.

"The IRS uses investigators, too," said a church
lawyer, Gerald A. Feffer, a former deputy assistant
attorney general now with Williams & Connolly, one of
Washington's most influential law firms. "They're
called CID agents" -- for Criminal Investigation
Division -- "and the CID agents put this church under
intense scrutiny for years with a mission to destroy
the church."

A blunt assessment of Scientology's victorious strategy
against the IRS was contained in a lengthy 1994 article
in International Scientology News, an internally
distributed magazine. The article said:

"This public exposure of criminals within the IRS had
the desired effect. The Church of Scientology became
known across the country as the only group willing to
take on the IRS."

"And the IRS knew it," the article continued. "It
became obvious to them that we weren't about to fold up
or fade away. Our attack was impinging on their
resources in a major way, and our exposes of their
crimes were beginning to have serious political
reverberations. It was becoming a costly war of
attrition, with no clear-cut winner in sight."

THE UNUSUAL PEACE: AFTER A MEETING, A 180-DEGREE TURN

Scientology made the initial gesture toward a
cease-fire when Miscavige, the church leader, paid
an unscheduled visit to the IRS commissioner, Goldberg.

The first full account of that meeting and the events
that followed inside the IRS was assembled from
interviews, Scientology's own internal account, IRS
documents and records in a pending suit brought by Tax
Analysts, a nonprofit trade publisher, seeking the
release of IRS agreements with Scientology and other
tax-exempt organizations.

Feffer, a church lawyer since 1984, said he approached
officials at the Justice Department and the IRS in 1991
with an offer to sit down and negotiate an end to the
dispute.

The church's version of what followed is quite
remarkable. Miscavige and Marty Rathbun, another church
official, were walking past the IRS building in
Washington with a few hours to spare one afternoon in
late October 1991 when they decided to talk to
Goldberg.

After signing the visitors' log at the imposing
building on Constitution Avenue, the two men asked to
see the commissioner. They told the security guard that
they did not have an appointment but were certain
Goldberg would want to see them. And, according to the
church account, he did.

Goldberg said he could not discuss the meeting,
although a former senior official confirmed that it
occurred. An IRS spokesman said it would be unusual for
someone to meet with the commissioner without an
appointment.

Miscavige does not grant interviews, church officials
said, but Rathbun said the Goldberg meeting was an
opportunity for the church to offer to end its long
dispute with the agency, including the dozens of suits
brought against the IRS, in exchange for the exemptions
that Scientology believed it deserved.

Goldberg's response was also out of the ordinary. He
created a special five-member working group to resolve
the dispute, bypassing the agency's exempt
organizations division, which normally handles those
matters. Howard M. Schoenfeld, the IRS official picked
as the committee's chairman in 1991, said later in a
deposition in the Tax Analysts case that he recalled
only one similar committee in 30 years at the agency.

The IRS negotiators and Scientology's tax lawyers held
numerous meetings over nearly two years. An IRS
official who participated, and who spoke about the
meetings on condition that his name not be used,
described the sessions as occasionally rancorous, but
he said the general tone was far friendlier than over
the preceding years.

There are indications that the early momentum was
toward resolution. In a letter to Ms. Yingling on Jan.
19, 1992, John E. Burke, the assistant commissioner for
exempt organizations, brushed aside what could have
been a stumbling block. Ms. Yingling had apparently
objected to the potential public disclosure of
information that the church was providing to the IRS.

Burke said he did not want the dispute to delay the
talks, and he committed the IRS to allowing only a
portion of the information to become public. He said
the only hitch would come "in the event that our
discussions break down, an eventuality that I have no
reason to believe will occur."

An IRS official involved in the talks said it was not
unusual for the agency to negotiate with a taxpayer
over what is made public in an agreement. By agreeing
at the outset that information could be withheld,
however, the IRS seemed to relinquish a big bargaining
chip.

Paul Streckfus, a former official in the IRS exempt
organization division, first disclosed the existence of
the negotiating committee in a trade journal after the
agreement was announced. He said in an interview that
creating the group meant a settlement was almost
preordained.

"Once the IRS decided to set up this rather
extraordinary group, the wheels were in motion for a
deal," Streckfus said.

Not even a stinging court decision in favor of the IRS
could derail the talks. Midway through the
negotiations, in June 1992, the U.S. Claims Court
handed down its decision upholding the IRS denial of a
tax exemption for Scientology's Church of Spiritual
Technology. The ruling underscored the agency's
longstanding concerns over the commercial nature of
Scientology and other matters.

Ms. Yingling, the church's tax lawyer, said the Claims
Court ruling ignored the facts and was filled with
gratuitous comments. She said the IRS negotiators were
fairer in considering the evidence.

A portion of the correspondence between the agency and
church from the two years of negotiations was released
when the exemptions were granted three and a half years
ago. It fills part of a large bookcase in the IRS
reading room in Washington.

The central issues are discussed in a series of lengthy
answers by Scientology's lawyers to questions from the
IRS. The church provided extensive information on its
finances and operational structure.

The senior IRS official involved in the negotiations,
who asked not to be identified, said the church
satisfied the agency in the three critical areas. He
said the committee was persuaded that those involved in
the Snow White crimes had been purged, that church
money was devoted to tax-exempt purposes and that, with
Hubbard's death, no one was getting rich from
Scientology.

Ms. Yingling argued that nothing substantive had
changed. She said the church had been qualified for tax
exemption for years, but biased elements within the IRS
had stood in its way.

"There were no changes in the operations or activities
of the church," she said. "What came about was finally
that they looked at all the information and saw that
the church qualified for exemption, and they were
satisfied."

In August 1993, the two sides reached an agreement. The
church would receive its coveted exemptions for every
Scientology entity in the country and end its legal
assault on the IRS and its personnel.

There was just one more step. Scientology entities were
required to submit new applications for exemption,
which were to be evaluated by the agency's exempt
organizations division. But something unusual occurred
there, too.

Schoenfeld, the negotiations chairman, ordered the two
tax analysts assigned to the review not to consider any
substantive matters, according to IRS memorandums and
records in the Tax Analysts case. Those issues,
Schoenfeld informed them, had been resolved.

Both analysts, Donna Moore and Terrell M. Berkovsky,
wrote memorandums specifying that they had been
instructed not to address issues like whether the
church was engaged in too much commercial activity or
whether its activities provided undue private benefit
to its leaders.

Schoenfeld, who has since left the IRS, said he could
not discuss the case. But the senior IRS official
involved in the talks said there was nothing sinister
about the instructions because those matters had been
decided by the negotiating committee. He acknowledged,
however, that this was not the typical procedure.

The agreement was announced on Oct. 13, 1993. The IRS
refused to make public any of its terms, including
whether the church paid any back taxes. The IRS also
refused to discuss the legal reasoning behind one of
the biggest turnarounds in tax history.

Tax lawyers said the IRS could have required the church
to disclose terms of the agreement, which it has done
in the past. In 1991, the IRS required the Jimmy
Swaggart Ministries to disclose that the group had paid
$171,000 in back taxes for violations. In 1993, just a
few months before the Scientology agreement, the IRS
required the Old Time Gospel Hour, a group affiliated
with the Rev. Jerry Falwell, to publicize its payment
of $50,000 in back taxes.

"The IRS actually specified which media outlets we were
to notify and approved the release," said Mark DeMoss,
a spokesman for Falwell. "When nobody picked it up,
they put out their own press release."

William J. Lehrfeld, who represents Tax Analysts in its
suit to make the Scientology agreement public, said,
"You and I, as taxpayers, are subsidizing these people,
and we should see this information."

THE AFTERMATH: A FORMER ENEMY BECOMES AN ALLY

Five days before the official announcement,
Miscavige went before the Scientology gathering in
Los Angeles and declared victory. In a two-hour speech,
according to the account in International Scientology
News, Miscavige described years of attacks against
Hubbard and Scientology by the government.

"No other group in the history of this country has ever
been subject to the assault I have briefed you on
tonight," he said, calling it "the war to end all
wars."

As part of the settlement, Miscavige said, the IRS had
agreed to distribute a fact sheet describing
Scientology and Hubbard. "It is very complete and very
accurate," Miscavige said. "Now, how do I know? We
wrote it! And the IRS will be sending it out to every
government in the world."

Feffer, Ms. Yingling and Thomas C. Spring, another of
the church's tax lawyers, appeared in formal attire on
stage that night and received Waterford crystal
trophies in recognition of their efforts.

Miscavige called the agreement a peace treaty that
would mark the biggest expansion in Scientology
history.

The church immediately began citing the IRS decision in
its efforts to win acceptance from other governments
and to silence critics. But the biggest public
relations benefit may have come from the U.S.
government itself.

Four months after the exemptions were granted, the
State Department released its influential human rights
report for 1993, a litany of the countries that abuse
their citizens. For the first time, the report
contained a paragraph noting that Scientologists had
complained of harassment and discrimination in Germany.
The matter was mentioned briefly in the 1994 and 1995
reports, too.

Throughout those years, the dispute between
Scientologists and the German government escalated. In
an intense publicity campaign that included
advertisements in this newspaper, the church said that
businesses owned by Scientologists were boycotted and
that its members were excluded from political parties
and denied access to public schools. The church
asserted that the German actions paralleled early Nazi
persecution of Jews.

The German government responded that Scientology was
not a church worthy of tax exemption, but a commercial
enterprise -- the very position the IRS had maintained
in its 25-year war against the church. German officials
said equating the treatment of Scientologists with that
of Jews under the Nazi regime was a distortion and an
insult to victims of the Holocaust, a view supported by
some Jewish leaders in Germany.

The dispute turned into a diplomatic ruckus in January
when the State Department released its 1996 human
rights report, with an expanded section on Scientology
that said German scrutiny of the religion had
increased. Artists had been prevented from performing
because of their membership in the church and the youth
wing of the governing Christian Democratic Union had
urged a boycott of the film "Mission: Impossible"
because its star, Tom Cruise, is a prominent
Scientologist, the State Department said.

German officials were angered by the criticism, and
Foreign Minister Klaus Kinkel raised the matter with
Secretary of State Madeleine K. Albright when she was
in Bonn on Feb. 18. Ms. Albright told him that the
issue was a subject for bilateral discussions, but she
said she found claims by Scientologists that they are
the victims of Nazi-style persecution "distasteful."

Nicholas Burns, the State Department spokesman, said
that, despite the belief that Scientologists had gone
too far in drawing comparisons to persecution of Jews,
the department had felt compelled to expand on the
church's troubles with the Germans in its latest human
rights report.

"The Germans are quite adamant, based on their own
history, that these are the kinds of groups that ought
to be outlawed," Burns said. "However, for our
purposes, we classify Scientology as a religion because
they were granted tax-exempt status by the American
government."

An Ultra-Aggressive Use of Investigators and the Courts

By DOUGLAS FRANTZ

For years, Scientology has gone to great lengths to
defend itself from critics. Often its defense has
involved private investigators working for its lawyers.
While the use of private investigators is common in the
legal profession, some instances involving the church
have been unusual.

Scientology officials said that the investigators
operated within the law and that the tactics were
necessary to counter attacks made over the years by
Internal Revenue Service agents and the press.

"When people stop spreading lies about them and stop
printing false allegations about them in newspapers,
the church will stop using private investigators," said
Monique E. Yingling, a church lawyer.

In 1986 the Federal Court of Appeals in Boston said
evidence in an extortion case indicated that
Scientology investigators had induced witnesses to lie.
It identified one investigator as Eugene M. Ingram.

Eight years later, Ingram was charged with
impersonating a police officer in seeking information
about a sheriff in Tampa, Fla., while working as a
church investigator. He and a Scientology employee
flashed badges and told a woman that they were police
detectives before questioning her about possible links
between a county sheriff and what was said to be a
prostitution ring, police records say.

Court officials said a warrant for Ingram's arrest was
still outstanding.

Ingram had been dismissed from the Los Angeles Police
Department in 1981 after accusations that he was
involved in running a prostitution ring and had
provided information to a drug dealer. He was acquitted
of criminal charges in that case.

Elliot J. Abelson, the church's general counsel, said
he had used Ingram often as an investigator and had the
highest regard for him. He said the Tampa case was
phony.

Richard Behar, an investigative reporter, incurred
Scientology's wrath when he wrote a cover article about
the church in Time magazine in 1991. The article called
the church "a hugely profitable global racket that
survives by intimidating members and critics in a
Mafia-like manner."

The church and a member sued Time and Behar for libel,
and the company spent more than $7 million defending
the cases. The church's suit was dismissed last year by
a Federal District Court judge, an action being
appealed by Scientology. The individual's suit was
settled with a corrective paragraph but no money.

Behar contends in a countersuit that even before the
article ran, church investigators questioned his
acquaintances about his health and whether he had had
tax or drug problems. Behar said that after the article
ran, he had been followed by Scientology agents and had
been so concerned he had hired bodyguards.

In 1992, Judge Ronald Swearinger of Los Angeles County
Superior Court told The American Lawyer magazine that
he believed Scientologists had slashed his car tires
and drowned his collie while he was presiding over a
suit against the church. The church denied the
accusations.

In 1993, Judge James M. Ideman was presiding over a
suit involving Scientology in Federal District Court in
Los Angeles when he took the unusual step of
withdrawing from the case. In a court statement, he
said he could no longer preside fairly because the
church "has recently begun to harass my former law
clerk who assisted me on this case."

Kendrick L. Moxon, the church's lawyer in the case,
said he had tried to question the former clerk about
accusations that there was a framed Time magazine cover
about Scientology in the judge's chambers. He said that
the former clerk had refused to talk to him and that
his subpoena for her testimony had been quashed.

Scientology's tactics in court have also drawn judicial
rebukes. Last year, the California Court of Appeal
accused Scientology of using "the litigation process to
bludgeon the opponent into submission." The Federal
Court of Appeals in San Francisco said last year that
Scientology had played "fast and loose with the
judicial system" and levied $2.9 million in sanctions
against the church.

By aggressively pursuing its opponents in court, the
church seems to heed the preaching of L. Ron Hubbard,
its founder, who once wrote: "The purpose of the suit
is to harass and discourage rather than win. The law
can be used very easily to harass, and enough
harassment on somebody who is simply on the thin edge
anyway ... will generally be sufficient to cause his
professional decrease. If possible, of course, ruin him
utterly."

One focus of suits by Scientologists was the Cult
Awareness Network, a nonprofit organization dedicated
to countering religious groups it perceived as
dangerous.

Scientology has long regarded the network, known as
CAN, as an opponent of religious freedom and a hate
group. Church officials said the network used
"deprogrammers" to kidnap people in an effort to
persuade them to leave small religious groups.
Deprogrammers affiliated with the network have been
convicted of crimes in connection with efforts to force
people to leave religious organizations.

Beginning in 1992, Scientologists filed 40 to 50 suits
against the network and its officers, contending that
they discriminated by refusing to allow Scientologists
to attend conventions or join chapters. Some
Scientologists prevailed in court.

Moxon, who represented many Scientologists, said the
suits had been intended to address network
discrimination against people who wanted to reform it.

But Daniel A. Leipold, who represented the network,
said during depositions in some of the suits that the
actions had been part of a campaign by Scientology to
destroy the network.

Last year, the network declared bankruptcy after a $1.8
million judgment against it in a suit brought by a
young man who had been a member of a Pentecostal group.
The jury found that the man had been forcibly detained
by a deprogrammer. Moxon, who represented the man, said
that he had taken the case as a religious freedom
matter and that his expenses had been paid by the
Pentecostal group.

After the network filed for bankruptcy, its name, logo
and telephone were bought by a group represented by a
lawyer who is a Scientologist. While the church said it
had no connection with the purchasers, a brochure
mailed by the new Cult Awareness Network in January was
a glowing description of Scientology as a means to
"increase happiness and improve conditions for oneself
and for others."